Question 10.RQ.4: Identify the costs of holding (a) too little cash; (b) too m...

(a) The costs of holding too little cash are:
● failure to meet obligations when they fall due, which can damage the reputation of
the business and may, in the extreme, lead to the business being wound up;
● having to borrow and thereby incur interest charges;
● an inability to take advantage of profitable opportunities.
(b) The costs of holding too much cash are:
● failure to use the funds available for more profitable purposes;
● loss of value during a period of inflation.